DBRS Assigns Ratings to GLM EUR BAR WH D.A.C.

DBRS Ratings Limited (DBRS) assigned ratings to the Senior Funding Facility (SFF) and the Senior Mezzanine Funding Facility (SMFF; together, the Facilities) of GLM EUR BAR WH D.A.C. (the Borrower) as follows:

-- SFF rated A (high) (sf)
-- SMFF rated BBB (low) (sf)

The rating on the SFF addresses the timely payment of interest and the ultimate payment of principal payable on or before the Warehouse Termination Date in December 2030. The rating on the SMFF addresses the ultimate payment of interest and principal payable on or before the Warehouse Termination Date in December 2030. The warehouse documents were executed in December 2017 and amended and restated in April 2018.

The Borrower is a designated activity company incorporated under the laws of the Republic of Ireland. The warehouse transaction is set up as a cash flow securitisationcollateralised by a portfolio of leveraged loans and high yield bonds subject to eligibility criteria, collateral quality and portfolio profile tests. GoldenTree Loan Management, LP will act as the Collateral Manager (CM) of the Borrower.

As of 31 May 2018, the transaction portfolio consisted of EUR 83.2 million of collateral obligations extended to 27 borrowers. The Borrower will continue to draw on the Facilities based on a predetermined schedule as trades settle. Upon each drawing request, the CM will ensure that certain tests are in compliance on an asset-traded balance.

The warehouse allows the manager to chose between a 12-month or 24-month reinvestment period followed by an amortisation period. The warehouse will reach its maturity date at the earliest of the Final CLO Closing Date, the Optional Early Redemption Date, the Mandatory Early Redemption Date and December 2030.

Bank of New York Mellon - London Branch will act as the Account Bank. As per the transaction documentation, if the rating of the Account Bank is either withdrawn or downgraded below AA, such entity must be replaced within 30 calendar days by a financial institution with a DBRS public rating of “A.”

DBRS has analysed ten covenant matrix structures – five MtM matrix structures and five Non-MtM matrix structures – where for both matrices (ten structures) as the size of the capital structure increases, collateral quality tests, such as the DBRS recovery rate, weighted-average (WA) spread and WA coupon, also change. This allows the CM to switch between the structures any time during the reinvestment period pursuant to certain conditions being met. Both warehouse notionals will be up to EUR 200 million, with the equity notional increasing to EUR 40 million for the MtM Format and EUR 50 million for the Non-MtM Format. For the MtM Format, the total capitalisation constitutes an SFF size of EUR 135 million, an SMFF size of EUR 25 million and the remaining EUR 40 million in equity, while the Non-MtM format total capitalization constitutes an SFF size of EUR 137.5 million, an SMFF size of EUR 12.5 million and the remaining EUR 50 million in equity. In pre-pricing scenarios, the equity size gradually increases to EUR 50 million from EUR 5 million; the MFF size can be increased or reduced to provide credit enhancement to the SFF.

DBRS used the publicly available CLO Asset Model to determine a lifetime pool default rate at the required rating levels for each drawing point. The CLO Asset Model takes key covenants of the portfolio to create a stressed modelling pool for each level of the drawing schedule based on the covenants. The CLO Asset Model employs a Monte Carlo simulation to determine cumulative default rates (or hurdle rates) at each rating stress level. Break-even default rates on the Facilities were determined in accordance with DBRS’s “Cash Flow Assumptions for Corporate Credit Securitizations” methodology.

For the underlying collateral analysis, DBRS will either use (1) its own publicly available ratings of each obligor; (2) where such ratings are not available, DBRS will use publicly available obligor ratings from other nationally recognised statistical rating organisations; and (3) if no public ratings are available, then the CM is obligated to provide the necessary information to DBRS to complete the Credit Estimate. Such Credit Estimates will be used to continuously monitor the transaction.

The ratings of the Facilities are based on DBRS’s review of the above-mentioned factors and the following analytical considerations:

-- The transaction structure, the form and sufficiency of available credit enhancement as well as the portfolio characteristics. Most of the portfolio profile tests are set at a portfolio notional of EUR 200 million at all times, and DBRS created stressed modelling pools for its analysis based on these covenants.
-- The transaction parties’ financial strength and capabilities to perform their respective duties and the quality of origination, underwriting and servicing practices.
-- An assessment of the operational capabilities of key transaction participants.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay lenders according to the terms of their investment. Interest and principal payments on the Facilities will accrue and are payable quarterly.
-- The soundness of the legal structure, the presence of legal opinions that address the true sale of the assets to the Borrower, the non-consolidation of the Borrower and consistency with DBRS’s “Legal Criteria for European Structured Finance Transactions” methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Rating CLOs and CDOs of Large Corporate Credit.”

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

An asset and a cash flow analysis were both conducted. Due to the inclusion of a reinvestment period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.

Other methodologies referenced in this transaction are listed at the end of this press release.

These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of data and information used for this rating include the Borrower, the CM and the Senior and Mezzanine Lender.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial rating, DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

This rating concerns newly issued financial instrument. This is the first DBRS rating on this financial instrument.

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

Drawdown Structure of total EUR 200 million warehouse:
For the last point in the matrix, in a pre-pricing scenario, the warehouse notional amount is expected to be EUR 200 million.
-- An increase in Risk Score by 15% would lead to no impact on both the SFF rating and the MFF rating.

-- An increase in Risk Score by 30% would lead to no impact on both the SFF rating and the MFF rating.

For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Carlos Silva, Senior Vice President
Rating Committee Chair: Jerry van Koolbergen, Managing Director
Initial Rating Date: 29 June 2018

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction can be found at:
http://www.dbrs.com/about/methodologies.

-- Rating CLOs and CDOs of Large Corporate Credit
-- Legal Criteria for European Structured Finance Transactions
-- Cash Flow Assumptions for Corporate Credit Securitizations
-- Interest Rate Stresses for European Structured Finance Transactions

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.